LPM Tip

Middle of the road: the treatment of flat fees

As clients demand further cost certainty from their attorneys, it
appears that offers of alternative fee arrangements (generally, as
non-billable hour models) are beginning to affect law firm choice. Certainly, there are a number
of alternative fee arrangements that lawyers may utilize, or
derive; the flat fee option, and its derivatives, are some
of them. In fact, some practitioners, like estate planners, have
been using flat fee arrangements for quite some time.

However, even those who use flat fees may be unaware of the
options available for how to account for them. In Massachusetts,
flat fees may be deposited into your operating or your
IOLTA account. (Don't believe me? Read this: "Flat fees occupy a middle ground
and can either be deposited to a trust account and withdrawn as
earned or deposited to a personal or operating account subject to
refund where required.") Functionally, it doesn't matter which
option you choose; practically, it's a matter of preference.

The unearned portion of flat fees must be returned, like
retainers (non-refundable retainers are not allowed in
Massachusetts). So placing the flat fee into the IOLTA account
means that, while you will have to do some more work tracking the
money when you reconcile the account, you're virtually assured of
having the money available to you (so long as you manage your trust
accounts correctly) to refund should you need to, such as when
representation is terminated by either side before the fee is
earned.

While deposit of the flat fee into the operating account carries
with it less burdensome administrative requirements, you are more
likely to spend that money to support your firm, rather than
holding it back for a potential refund, so you risk not having the
unused portion of the flat fee to refund, should the need arise.
The question is likely further informed by the maturity of the law
firm. If you're operating on a shoestring budget as a new
practitioner, you'll likely want to deposit your flat fee into your
trust account to be sure you have the money to give back, if you
need to give it back. But, if you're running a practice with
significant billings, you may feel more confident that you will
have money in your operating account to refund, should you need to
make a refund.